Gold prices fell by more than 3% on Friday after comments on inflation from Federal Reserve Chairman Kevin Warsh prompted traders to raise their expectations of a possible interest rate increase in September.

Gold futures closed lower, pulling back from their recent peaks, while a stronger US dollar made the metal more expensive for holders of other currencies. The drop marks one of the sharper single-day declines for the metal in recent months, following a rally that had been driven in part by central bank buying and demand for safe-haven assets.

Warsh's remarks on inflation shifted market pricing toward the possibility of a rate hike at the Fed's September meeting, according to the report. Higher interest rates tend to weigh on gold, which pays no interest, as they increase the opportunity cost of holding the non-yielding metal. Expectations for Fed policy have been a recurring swing factor for bullion this year, with earlier bets on rate cuts helping fuel gold's ascent and renewed hawkishness now applying pressure in the other direction.

The move also highlights how sensitive gold has become to shifts in rate expectations, as traders weigh incoming inflation data and Fed commentary ahead of the September meeting. Signs that price pressures are persisting could keep rate-hike expectations elevated, while softer data or a dovish tilt from policymakers would likely ease that pressure.

Source: Economic Times Markets